Gold Jumps to 3-Week High as China Raises Risk of Currency War

Gold climbed to a three-week high as China’s devaluation of the yuan spurred concern that other countries may intervene in the currency market. Palladium advanced.

China devalued the yuan by the most in two decades as policy makers stepped up efforts to support exporters. The central bank cut its daily reference rate by 1.9 percent, triggering the yuan’s biggest one-day drop since China unified official and market exchange rates in January 1994, adding to fears of another round of international currency devaluations in a bid to make exports more competitive.

Gold, which doesn’t pay interest or give returns like other assets such as equities and bonds, is often bought as an alternative to currencies. Moves by central banks to devalue monies can boost the metal’s appeal as a store of value.

“The Chinese move is being seen as potentially restarting the currency war, which creates a climate in which gold will react,” Christin Tuxen, a senior analyst at Danske Bank A/S, said by phone from Copenhagen. “The likelihood of other countries taking steps to cap their currencies is greater today than it was yesterday, and that increases the attractiveness of gold.”

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